QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM
TO

COMMISSION FILE NUMBER: 814-00237

GLADSTONE
CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

MARYLAND

54-2040781

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1521 WESTBRANCH DRIVE, SUITE 100

MCLEAN, VIRGINIA

22102

(Address of principal executive office)

(Zip Code)

(703) 287-5800

(Registrants telephone number, including area code)

Not Applicable

(Former
name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨
No
¨

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨
(Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x

The number of shares of the issuers common stock, $0.001 par value per share, outstanding as of August 2, 2016 was 23,344,422.

Refer to Note 4
Related Party Transactions
for additional information.

(B)

Significant non-cash operating activities consisted principally of the following transaction: In February 2016, our investment in Targus Group International, Inc. (Targus) was restructured. As part of the
transaction, our secured first lien debt investment with a cost basis and fair value of $9.0 million and $6.9 million, respectively, was restructured resulting in a common stock investment with a cost basis of $2.3 million and a secured first lien
debt investment with a cost basis of $2.1 million. We contributed $0.5 million in cash as part of the transaction. The restructure resulted in a net realized loss of $5.5 million and a new investment in Targus Cayman HoldCo Limited, which is
listed on the accompanying
Consolidated Statement of Investments
as of June 30, 2016.

THE ACCOMPANYING NOTES ARE
AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Total Affiliate Investments (represented 19.7% of total investments at fair
value)

$

84,639

$

60,695

CONTROL
INVESTMENTS
(P)
:

Proprietary Investments:

Defiance Integrated Technologies, Inc.

Automobile

Secured Second Lien Debt (11.0%, Due 2/2019)
(F)

$

6,305

$

6,305

$

6,305

Common Stock (33,321 shares)
(F)(H)

580

2,817

$

6,885

$

9,122

Sunshine Media Holdings

Printing and publishing

Secured First Lien Line of Credit, $672 available (8.0%, Due 5/2016)
(F)(G)(R)

1,328

1,328

1,328

Secured First Lien Debt (8.0%, Due 5/2016)
(F)(G)(R)

5,000

5,000

1,614

Secured First Lien Debt (4.8%, Due 5/2016)
(F)(I)(R)

11,948

11,948

3,858

Secured First Lien Debt (5.5%, Due 5/2016)
(C)(F)(I)(R)

10,700

10,700



Preferred Stock (15,270 shares)
(F)(H)(K)

5,275



Common Stock (1,867 shares)
(F)(H)

740



Common Stock Warrants (72 shares)
(F)(H)





34,991

6,800

Total Control Proprietary Investments (represented 5.2% of total investments at fair
value)

$

41,876

$

15,922

TOTAL INVESTMENTS

$

386,326

$

308,226

(A)

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $259.4 million at fair value, are pledged as
collateral to our revolving line of credit, as described further in Note 5
Borrowings.
Under the Investment Company Act of 1940, as amended, (the 1940 Act), we may not acquire any non-qualifying assets unless, at
the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of June 30, 2016, two of our investments (FedCap Partners, LLC and Leeds Novamark Capital I, L.P.) are considered non-qualifying assets under
Section 55 of the 1940 Act. Such non-qualifying assets represent 0.7% of total investments, at fair value, as of June 30, 2016.

(B)

Percentages represent cash interest rates (which are generally indexed off of the 30-day London Interbank Offered Rate (LIBOR)) in effect at June 30, 2016, and due dates represent the contractual maturity
date. If applicable, paid-in-kind (PIK) interest rates are noted separately from the cash interest rates and any unused line of credit fees are excluded. Secured first lien debt securities generally take the form of first
priority liens on substantially all of the assets of the underlying portfolio company businesses.

(C)

Last out tranche (LOT) of secured first lien debt, meaning if the portfolio company is liquidated, the holder of the LOT is generally paid after the other secured first lien debt holders but before all other
debt and equity holders.

(D)

Fair value was based on an internal yield analysis or on estimates of value submitted by Standard & Poors Securities Evaluations, Inc. (SPSE).

(E)

Fair value was based on the indicative bid price on or near June 30, 2016, offered by the respective syndication agents trading desk.

(F)

Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio companys securities in order of their relative priority in the capital
structure.

(G)

Debt security has a fixed interest rate.

(H)

Investment is non-income producing.

(I)

Investment is on non-accrual status.

(J)

New investment valued at cost, as it was determined that the price paid during the quarter ended June 30, 2016 best represents fair value as of June 30, 2016.

(K)

Aggregates all shares of such class of stock owned without regard to specific series owned within such class, some series of which may or may not be voting shares.

(L)

There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution of the entity, which must occur no later than May 3,
2020.

(M)

There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.

(N)

Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor
Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(O)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and
outstanding voting securities.

(P)

Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the
portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(Q)

This investment does not have a stated interest rate that is payable thereon.

(R)

Subsequent to June 30, 2016, the maturity dates of our loans to Sunshine Media Holdings were extended to May
2018.

(S)

Fair value was based on net asset value provided by the fund as a practical expedient.

(T)

One of our affiliated funds, Gladstone Investment Corporation, co-invested with us in this portfolio company
pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

Secured First Lien Line of Credit, $604 available (8.0%, Due 5/2016)
(F)(G)

$

1,396

$

1,396

$

1,396

Secured First Lien Debt (8.0%, Due 5/2016)
(F)(G)

5,000

5,000

2,379

Secured First Lien Debt (4.8%, Due 5/2016)
(F)(I)

11,948

11,948

5,686

Secured First Lien Debt (5.5%, Due 5/2016)
(C)(F)(I)

10,700

10,700



Preferred Stock (15,270 shares)
(F)(H)(K)

5,275



Common Stock (1,867 shares)
(F)(H)

740



Common Stock Warrants (72 shares)
(F)(H)





35,059

9,461

Total Control Proprietary Investments (represented 6.1% of total investments at fair
value)

$

41,762

$

22,451

TOTAL INVESTMENTS
(S)

$

410,244

$

365,891

(A)

Certain of the securities listed in the above schedule are issued by affiliate(s) of the indicated portfolio company. Additionally, the majority of the
securities listed above, totaling $312.0 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5
Borrowings.
Under the Investment Company Act of 1940, as amended, (the
1940 Act), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2015, two of our investments (FedCap Partners,
LLC and Leeds Novamark Capital I, L.P.) are considered non-qualifying assets under Section 55 of the 1940 Act. Such non-qualifying assets represent 0.5% of total investments, at fair value, as of September 30, 2015.

(B)

Percentages represent cash interest rates (which are generally indexed off of the 30-day London Interbank Offered Rate (LIBOR)) in effect at September 30, 2015, and due dates represent the contractual
maturity date. If applicable, paid-in-kind (PIK) interest rates are noted separately from the cash interest rates. Secured first lien debt securities generally take the form of first priority liens on substantially all of the
assets of the underlying portfolio company businesses.

(C)

Last out tranche (LOT) of debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after all other debt holders.

(D)

Fair value was based on an internal yield analysis or on estimates of value submitted by Standard & Poors Securities Evaluations, Inc. (SPSE).

(E)

Fair value was based on the indicative bid price on or near September 30, 2015, offered by the respective syndication agents trading desk.

(F)

Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio companys securities in order of their relative priority in the capital
structure.

(G)

Debt security has a fixed interest rate.

(H)

Investment is non-income producing.

(I)

Investment is on non-accrual status.

(J)

New or restructured proprietary investment valued at cost, as it was determined that the price paid during the quarter ended September 30, 2015 best represents fair
value as of September 30, 2015.

(K)

Aggregates all shares of such class of stock owned without regard to specific series owned within such class, some series of which may or may not be voting shares.

(L)

Subsequent to September 30, 2015, the investment was sold, and as such the fair value as of September 30, 2015 was based upon the sales amount.

(M)

Fair value was based on net asset value provided by the fund as a practical expedient.

(N)

There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution
of the entity, which must occur no later than May 3, 2020.

(O)

There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the
entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured.

(P)

Non-Control/Non-Affiliate investments, as defined by the Investment Company Act of 1940, as amended, (the 1940 Act), are those that are neither Control
nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(Q)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and
outstanding voting securities.

(R)

Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the
portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)

NOTE 1. ORGANIZATION

Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August
24, 2001. The terms the Company, we, our and us all refer to Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed, closed-end, non-diversified
management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act) and is applying the guidance of the Financial Accounting
Standards Board (the FASB) Accounting Standards Codification Topic 946 
Financial Services-Investment Companies
. In addition, we have elected to be treated for tax purposes as a regulated investment company
(RIC) under the Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States
(U.S). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established small and medium-sized businesses in the U.S. that we believe will provide stable earnings and
cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our
assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.

Gladstone Business Loan, LLC (Business Loan), a wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of
owning a portion of our portfolio of investments in connection with our revolving line of credit.

Gladstone Financial Corporation (Gladstone
Financial), a wholly-owned subsidiary of ours, was established on November 21, 2006, for the purpose of holding a license to operate as a Specialized Small Business Investment Company. Gladstone Financial acquired this license in February
2007. The license enables us to make investments in accordance with the United States Small Business Administration guidelines for specialized small business investment companies. As of June 30, 2016 and September 30, 2015, we held no
investments in portfolio companies through Gladstone Financial.

The financial statements of Business Loan and Gladstone Financial are consolidated with
ours. We also have significant subsidiaries whose financial statements are not consolidated with ours. Refer to Note 12
Unconsolidated Significant Subsidiaries
for additional information regarding our unconsolidated significant
subsidiaries.

We are externally managed by Gladstone Management Corporation (the Adviser), a Delaware corporation and a U.S. Securities and
Exchange Commission (the SEC) registered investment adviser and an affiliate of ours, pursuant to an investment advisory and management agreement (the Advisory Agreement). Administrative services are provided by our
affiliate, Gladstone Administration, LLC (the Administrator), a Delaware limited liability company, pursuant to an administration agreement (the Administration Agreement). Refer to Note 4
Related Party
Transactions
for additional information regarding these arrangements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual
financial statements. The accompanying
Consolidated Financial Statements
include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In
accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants (AICPA) Audit and
Accounting Guide for Investment Companies, codified in FASB Accounting Standards Codification 946 (ASC 946), Financial Services- Investment Companies, we are precluded from consolidating any entity other than another investment company,
except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely
of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and nine months ended June 30, 2016, are not necessarily indicative of results
that ultimately may be achieved for the fiscal year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2015, as filed with the SEC on November 23, 2015, as amended on December 29, 2015.

Our accompanying fiscal year-end
Consolidated Statement of Assets and Liabilities
was derived from audited financial statements, but does not include all disclosures required by GAAP.

We record our investments at fair
value in accordance with the FASB Accounting Standards Codification Topic 820, 
Fair Value Measurements and Disclosures
(ASC 820) and the 1940 Act. Investment transactions are recorded on the trade
date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and amortized cost basis of the investment, without regard to unrealized depreciation or appreciation previously recognized, and
include investments charged off during the period, net of recoveries. Unrealized depreciation or appreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized depreciation or
appreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our board of directors (our Board of Directors) has the ultimate responsibility for reviewing and approving, in
good faith, the fair value of our investments based on our investment valuation policy, which has been approved by our Board of Directors (the Policy). Such review occurs in three phases. First, prior to its quarterly meetings, our
Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from our chief valuation officer, who reports directly to our Board of
Directors (the Valuation Team). Second, the Valuation Committee of our Board of Directors, comprised entirely of independent directors, meets to review the valuation recommendations and supporting materials. Third, after the
Valuation Committee concludes its meeting, it and our chief valuation officer present the Valuation Committees findings to the entire Board of Directors and, after discussion, the Board of Directors ultimately approves the value of our
portfolio of investments.

There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon
the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by our chief valuation officer, uses the Policy and each quarter the Valuation Committee and Board of
Directors reviews the Policy to determine if changes are advisable and also reviews whether the Valuation Team has applied the Policy consistently.

Use
of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of
our investments.

Standard & Poors Securities Evaluation, Inc. (SPSE), a valuation specialist, generally provides estimates of
fair value on our proprietary debt investments. The Valuation Team generally assigns SPSEs estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation
Team corroborates SPSEs estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Teams estimate of value on a specific debt investment may significantly differ from SPSEs. When this
occurs, the Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended fair value is reasonable in light of the Policy and other facts and circumstances and
then votes to accept or reject the Valuation Teams recommended fair value.

We may engage other independent valuation firms to provide earnings
multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or
review our valuation of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our total enterprise value, including review of all inputs
provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, whether it is
reasonable in light of the Policy, as well as other relevant facts and circumstances and then votes to accept or reject the Valuation Teams recommended fair value.

Valuation Techniques

In accordance with ASC 820, the
Valuation Team uses the following techniques when valuing our investment portfolio:



Total Enterprise Value
 In determining the fair value using a total enterprise value
(TEV), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio companys ability to make payments and other specific portfolio company
attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (EBITDA)); EBITDA or revenue multiples obtained from our indexing
methodology whereby the original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar
securities in similar industries; a comparison to publicly traded securities in similar industries, inputs provided by an independent valuation firm, if any, and other pertinent factors. The Valuation Team generally reviews industry

statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then allocates the TEV to the portfolio
companys securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio
company, our debt investments.

TEV is primarily calculated using EBITDA or revenue multiples; however, TEV may also be
calculated using a discounted cash flow (DCF) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate
adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses the DCF to calculate the TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio
company or for debt of credit impaired portfolio companies.



Yield Analysis
 The Valuation Team generally determines the fair value of our debt investments using the yield analysis, which includes a DCF calculation and the Valuation Teams own
assumptions, including, but not limited to, estimated remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other
things, increased probability of default, increased loss upon default and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by SPSE and market quotes.



Market Quotes
 For our syndicate investments for which a limited market exists, fair value is generally based on readily available and reliable market quotations which are corroborated by the
Valuation Team (generally by using the yield analysis explained above). In addition, the Valuation Team assesses trading activity for similar syndicated investments and evaluates variances in quotations and other market insights to determine if any
available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (IBP) in the bid-to-ask price range obtained from the respective originating syndication agents trading desk on or near
the valuation date. The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy.



Investments in Funds
 For equity investments in other funds, where we cannot effectuate a sale, the Valuation Team generally determines the fair value of our uninvested capital at par value and of
our invested capital at the net asset value (NAV) provided by the fund. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying
entity.

In addition to the above valuation techniques, the Valuation Team may also consider other factors when determining fair values of
our investments, including, but not limited to: the nature and realizable value of the collateral, including external parties guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which
the portfolio company operates. If applicable, new and follow-on proprietary debt and equity investments made during the current reporting quarter (the quarter ended June 30, 2016) are generally valued at original cost basis.

Fair value measurements of our investments may involve subjective judgments and estimates and due to the inherent uncertainty of determining these fair
values, the fair value of our investments may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the Advisers
determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur
over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on
resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Interest income, including the amortization of premiums, acquisition costs, and amendment fees, the accretion of original issue discounts
(OID), and paid-in-kind (PIK) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment
indicates that the borrower is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the
ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon
managements judgment. Generally, non-accrual loans are restored to accrual status when a loans status significantly improves regarding the debtors ability and intent to pay contractual amounts due, or past due principal and
interest are paid and, in managements judgment, are likely to remain current, or, due to a restructuring, the interest

income is deemed to be collectible. As of June 30, 2016, two portfolio companies were either fully or partially on non-accrual status with an aggregate debt cost basis of approximately $26.5
million, or 7.5% of the cost basis of all debt investments in our portfolio, and an aggregate debt fair value of approximately $6.5 million, or 2.3% of the fair value of all debt investments in our portfolio. As of September 30, 2015, two
portfolio companies were either fully or partially on non-accrual status with an aggregate debt cost basis of approximately $26.4 million, or 7.1% of the cost basis of all debt investments in our portfolio, and an aggregate debt fair value of
approximately $7.1 million, or 2.2% of the fair value of all debt investments in our portfolio.

We currently hold, and we expect to hold in the future,
some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest,
computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Therefore, the actual collection of PIK income may be deferred until the time of
debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both of our OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.

As of June 30, 2016 and September 30, 2015, we had 11 and 17 original OID loans, respectively, primarily from the syndicated investments in our
portfolio. We recorded OID income of $0.1 million during the three and nine months ended June 30, 2016, respectively, as compared to $0.1 and $0.2 million for the three and nine months ended June 30, 2015, respectively. The unamortized
balance of OID investments as of June 30, 2016 and September 30, 2015, totaled $0.5 million and $0.6 million, respectively. As of June 30, 2016 and September 30, 2015, we had five and four investments, respectively, with PIK interest. We
recorded PIK income totaling $0.6 million and $1.6 million during the three and nine months ended June 30, 2016, respectively and $0.3 and $0.5 million during the three and nine months ended June 30, 2015, respectively. We collected $0 and $0.1
million PIK interest in cash during the three and nine months ended June 30, 2016, respectively, and $0 during the nine months ended June 30, 2015.

Other Income Recognition

We record success fees when
earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically from an exit or sale. During the nine months ended June 30, 2016 and 2015, we recorded
success fee income of $2.8 million and $1.7 million, respectively.

Dividend income on equity investments is accrued to the extent that such amounts are
expected to be collected and if we have the option to collect such amounts in cash. During the nine months ended June 30, 2016 and 2015, we recorded dividend income of $0.3 million and $0.6 million, respectively.

We generally record prepayment fees upon our receipt of cash. Prepayment fees are contractually due at the time of an investments exit, based on
the prepayment fee schedule. During the nine months ended June 30, 2016, we recorded $0.2 million in prepayment fees. During the nine months ended June 30, 2015, we did not receive any prepayment fees.

Success fees, dividend income and prepayment fees are all recorded in other income in our accompanying
Consolidated Statements of
Operations.

Recent Accounting Pronouncements

In January 2016, the FASB issued Accounting Standards Update 2016-01,
Financial InstrumentsOverall: Recognition and Measurement of Financial
Assets and Financial Liabilities
(ASU 2016-01), which changes how entities measure certain equity investments and how entities present changes in the fair value of financial liabilities measured under the fair value option that
are attributable to instrument-specific credit risk. We are currently assessing the impact of ASU 2016-01 and do not anticipate a material impact on our financial position, results of operations or cash flows. ASU 2016-01 is effective for
annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted for certain aspects of ASU 2016-01 relating to the recognition of changes in fair value of financial
liabilities when the fair value option is elected.

In April 2015, the FASB issued Accounting Standards Update 2015-03, 
Simplifying the
Presentation of Debt Issuance Costs
 (ASU-2015-03), which simplifies the presentation of debt issuance costs. In August 2015, the FASB issued Accounting Standards Update 2015-15, 
Interest  Imputation of Interest
(Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
 (ASU 2015-15), which codifies an SEC staff announcement that entities are permitted to defer and
present debt issuance costs related to line of credit arrangements as assets. We are currently assessing the impact of ASU 2015-03 and do not anticipate a material impact on our financial position, results of operations or cash flows from
adopting this standard. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted. ASU 2015-15 was effective immediately.

In February 2015, the FASB issued Accounting Standards Update 2015-02, 
Amendments to the Consolidation Analysis
 (ASU 2015-02),
which amends or supersedes the scope and consolidation guidance under existing GAAP. We do not anticipate ASU-2015-02 to have a material impact on our financial position, results of operations or cash flows. ASU 2015-02 is effective for annual
reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted.

In August 2014, the FASB issued Accounting Standards Update 201415, 
Presentation of Financial
Statements  Going Concern (Subtopic 205  40):
Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern
 (ASU 2014-15). ASU 2014-15 requires management to
evaluate whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its
obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial position,
results of operations or cash flows from adopting this standard. We are currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15 is effective for annual periods ending after December 31, 2016 and
interim periods thereafter, with early adoption permitted.

In May 2014, the FASB issued Accounting Standards Update 2014-09, 
Revenue from
Contracts with Customers
 (ASU 2014-09), as amended in March 2016 by FASB Accounting Standards Update 2016-08,
Principal versus Agent Considerations
(ASU 2016-08) and as amended in April 2016 by
FASB Accounting Standards Update 2016-10,
Identifying Performance Obligations and Licensing
(ASU 2016-10), and in May 2016 by FASB Accounting Standards Update 2016-12,
Narrow-Scope Improvements and Practical
Expedients
(ASU 2016-12), which supersede or replace nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is
recognized over time or at a point in time and will expand disclosures about revenue. We are currently assessing the impact of the new guidance and do not anticipate a material impact on our financial position, results of operations or cash flows
from adopting these standards. In July 2015, the FASB issued Accounting Standards Update 2015-14, 
Deferral of the Effective Date,
 which deferred the effective date of ASU 2014-09. ASU 2014-09, as amended by ASU 2015-14, ASU
2016-08, ASU 2016-10, and ASU 2016-12, is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those years, with early adoption permitted for annual reporting periods beginning after
December 15, 2016 and interim periods within those years.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, our
investments fair value is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition
focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for
fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

Level 2
 inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either
directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers; and



Level 3
 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use
when pricing the financial instrument and can include the Valuation Teams assumptions based upon the best available information.

When
a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial
instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or, components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the
fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. As of June 30, 2016 and September 30, 2015, all of our investments were valued using Level 3 inputs and during the
three and nine months ended June 30, 2016 and 2015, there were no investments transferred into or out of Levels 1, 2 or 3.

The following table presents our investments carried at fair value as of June 30, 2016 and September 30, 2015, by
caption on our accompanying
Consolidated Statements of Assets and Liabilities
and by security type, all of which are valued using Level 3 inputs:

In accordance with the FASBs ASU 2011-04, 
Fair Value Measurement (Topic
820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Reporting Standards (

IFRS

)
, (ASU 2011-04), the following
table provides quantitative information about our Level 3 fair value measurements of our investments as of June 30, 2016 and September 30, 2015. The table below is not intended to be all-inclusive, but rather provides information on the
significant unobservable Level 3 inputs as they relate to our fair value measurements.

Quantitative Information about Level 3 Fair Value Measurements

Range / Weighted Average
(D)
as of

June 30,
2016

September 30,
2015

Valuation
Technique/
Methodology

Unobservable
Input

June 30,
2016

September 30,
2015

Secured first lien debt
(A)

$142,652

$130,900

Yield Analysis

Discount Rate

8.7% - 18.9%

/ 12.0%

6.6% - 30.0% /
13.0%

42,851

58,138

TEV

EBITDA multiple

6.2x  8.2x

/6.4x

2.4x - 7.4x

/ 6.3x

EBITDA

$1,093 - $4,394

/ $1,385

$1,333 - $55,042 /
$7,895

Revenue multiple

0.4x  0.4x

/ 0.4x

0.3x  0.8x

/ 0.7x

Revenue

$7,814 - $7,814

/$7,814

$1,838 - $6,387 /
$2,968

Discount Rate

13.8% - 13.8%

/ 13.8%



2,640

17,802

Market Quote

IBP

67.0% - 67.0%

/67.0%

77.0% - 100.0% /
87.7%

Secured second lien debt
(B)

72,746

72,624

Yield Analysis

Discount Rate

11.5% - 26.7%

/16.4%

10.2% - 16.2% /
13.9%

18,366

34,525

Market Quote

IBP

40.0% - 100.0%

/ 79.2%

78.0% -99.5%/
94.9%

6,305

13,154

TEV

EBITDA multiple

4.8x  4.8x

/4.8x

5.0x  6.4x

/ 5.7x

EBITDA

$2,437 - $2,437

/ $2,437

$3,740 -$6,878 /
$5,353

Unsecured debt

2,924



Yield Analysis

Discount Rate

10.1% - 10.1%

/ 10.1%



Preferred and common equity / equivalents
(C)

17,719

36,547

TEV

EBITDA multiple

4.0x  8.2x /

6.3x

2.4x  7.7x / 6.3x

EBITDA

$1,093 -$79,086

/$5,459

$249 - $55,042 /
$9,258

2,023

2,201

Investments in
Funds
(E)

Total Investments, at Fair Value

$308,226

$365,891

(A)

Fair value as of June 30, 2016 includes one new proprietary debt investment for $30.0 million that was valued at cost. Fair value as of September 30, 2015
includes three new proprietary debt investments totaling $28.8 million and one restructured proprietary debt investment for $2.4 million, which were all valued at cost, and two proprietary investments, which were valued at payoff amounts totaling
$28.2 million.

B)

Fair value as of September 30, 2015 includes one new proprietary debt investment for $6.8 million, which was valued at cost, and one syndicated investment which was valued at the payoff amount of $4.0 million.

(C)

Fair value as of September 30, 2015 includes three new proprietary equity investments totaling $1.4 million, which were all valued at cost.

(D)

The weighted average calculations are based on the principal balances for all debt related calculations and on the cost basis for all equity-related calculations for
the particular input.

(E)

Fair value as of June 30, 2016 and September 30, 2015 is based on net asset value as a practical expedient and is not subject to leveling within the fair value
hierarchy.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in market yields,
discounts rates, leverage, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase or decrease in market yields, discount rates or
leverage, or a decrease or increase in EBITDA or EBITDA multiples (or revenue or revenue multiples), may result in a corresponding decrease or increase, in the fair value of certain of our investments.

The following tables provide the changes in fair value, broken out by security type, during the three and nine
months ended June 30, 2016 and 2015 for all investments for which we determine fair value using unobservable (Level 3) inputs.

Reversal of prior period net deprecation (appreciation) on realization
(B)

2,294

(138

)





2,156

New investments, repayments and
settlements:
(C)

Issuances/originations

1,045

289

200

125

1,659

Settlements/repayments

(1,953

)

(2,933

)

(79

)



(4,965

)

Net Proceeds from Sales

(4,692

)

(6,136

)





(10,828

)

Transfers



(2,636

)



2,636



Fair Value as of June 30, 2015

$

185,304

$

120,586

$

27,646

$

13,680

$

347,216

Secured
First

Secured
Second

Preferred

Common
Equity/

Nine Months Ended June 30, 2015

Lien Debt

Lien Debt

Equity

Equivalents

Total

Fair Value as of September 30, 2014

$

118,414

$

135,887

$

13,684

$

13,301

$

281,286

Total gains (losses):

Net realized (loss) gain
(A)

(1,334

)

(11,955

)

(2,175

)

1,440

(14,024

)

Net unrealized (depreciation)
appreciation
(B)

(8,321

)

(2,804

)

12,131

(2,362

)

(1,356

)

Reversal of prior period net depreciation (appreciation) on realization
(B)

2,294

12,489

2,175

(1,440

)

15,518

New investments, repayments and
settlements:
(C)

Issuances/originations

71,078

18,789

2,244

2,117

94,228

Settlements/repayments

(3,471

)

(5,577

)

(413

)

(434

)

(9,895

)

Net proceeds from sales

(4,692

)

(12,271

)



(1,578

)

(18,541

)

Transfers



(2,636

)



2,636



Fair Value as of June 30, 2015

$

173,968

$

131,922

$

27,646

$

13,680

$

347,216

(A)

Included in net realized gain (loss) on our accompanying
Consolidated Statements of Operations
for the three and nine months ended June 30, 2016 and 2015.

(B)

Included in net unrealized appreciation (depreciation) of investments on our accompanying
Consolidated Statements of Operations
for the three and nine months ended June 30, 2016 and 2015.

(C)

Includes increases in the cost basis of investments resulting from new portfolio investments, the accretion of discounts, and PIK interest, as well as decreases in the cost basis of investments resulting from principal
repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments.

Investment Activity

Proprietary Investments

As of June 30, 2016 and September
30, 2015, we held 31 and 33 proprietary investments with an aggregate fair value of $280.1 million and $310.9 million, or 90.9% and 85.0% of the total portfolio at fair value, respectively. The following significant proprietary investment
transactions occurred during the nine months ended June 30, 2016:



In October 2015, Allison Publications, LLC paid off at par for proceeds of $8.2 million.



In October 2015, we sold our investment in Funko, which resulted in dividend and prepayment fee income of $0.3 million and a realized gain of $16.9 million. In connection with the sale, we received net cash proceeds of
$15.3 million, full repayment of our debt investment of $9.5 million, receivables of $3.1 million, recorded within other assets, net on the accompanying
Consolidated Statement of Assets and Liabilities
, and a continuing preferred and common
equity investment in Funko Acquisition Holdings, LLC, with a combined cost basis and fair value of $0.3 million at the close of the transaction. Additionally, we recorded a tax liability for the net unrealized built-in gain of $9.8 million that was
realized upon the sale, of which $6.3 million has been subsequently paid. The remaining tax liability of $3.5 million is included within other liabilities on the accompanying
Consolidated Statement of Assets and Liabilities
as of June
30, 2016.

In November 2015, we restructured our investment in Legend Communications of Wyoming, LLC (Legend) resulting in a $2.7 million pay down on the existing loan and a new $3.8 million investment in Drumcree,
LLC, which is listed separately on the accompanying
Consolidated Statement of Investments
as of December 31, 2015. In March 2016, Legend paid off at par for proceeds of $4.0 million.



In December 2015, we sold our investment in Heartland Communications Group (Heartland) for net proceeds of $1.5 million, which resulted in a realized loss of $2.4 million. Heartland was on non-accrual
status at the time of the sale.



In January 2016, we invested $8.5 million in LCR Contractors, Inc. through secured first lien debt.



In March 2016, we invested $10.0 million in Travel Sentry, Inc. through secured first lien debt.



In March 2016, J. America paid off at par for proceeds of $5.1 million.



In April 2016, we received net proceeds of $8.0 million related to the sale of Ashland Acquisition LLC, which resulted in a realized gain of approximately $0.1 million.



In June 2016, we invested $30.0 million in IA Tech, LLC through secured first lien debt.

Syndicated
Investments

As of June 30, 2016 and September 30, 2015, we held 12 and 15 syndicated investments with an aggregate fair value of $28.1 million and
$55.0 million, or 9.1% and 15.0% of the total portfolio at fair value, respectively. The following significant syndicated investment transactions occurred during the nine months ended June 30, 2016:



In October 2015, Ameriqual Group, LLC paid off at par for proceeds of $7.4 million.



In October 2015, we sold our investment in First American Payment Systems, L.P. for net proceeds of $4.0 million, which resulted in a net realized loss of $0.2 million.



In February 2016, our investment in Targus Group International, Inc. (Targus) was restructured, which resulted in a realized loss of $5.5 million and a new investment in Targus Cayman HoldCo Limited, which
is listed on the accompanying
Consolidated Statement of Investments
as of June 30, 2016.



In May 2016, we invested $2.0 million in Netsmart Technologies, Inc. through secured second lien debt.



In June 2016, Vision Solutions, Inc. paid off at par for proceeds of $8.0 million.



In June 2016, GTCR Valor Companies, Inc. paid off at par for proceeds of $3.0 million.

Investment
Concentrations

As of June 30, 2016, our investment portfolio consisted of investments in 43 companies located in 20 states across 20 different
industries, with an aggregate fair value of $308.2 million. The five largest investments at fair value as of June 30, 2016, totaled $104.5 million, or 33.9% of our total investment portfolio as of June 30, 2016, as compared to $109.6 million,
or 30.0% of our total investment portfolio as of September 30, 2015. Our average investment by obligor was $9.0 million at cost as of June 30, 2016, compared to $8.5 million at cost as of September 30, 2015. The following table outlines
our investments by security type as of June 30, 2016 and September 30, 2015:

The following table summarizes the contractual principal repayments and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments,
as of June 30, 2016:

Amount
(A)

For the remaining three months ending September 30:

2016

$

38,702

For the fiscal year ending September 30:

2017

43,464

2018

28,833

2019

45,661

2020

91,225

Thereafter

100,877

Total contractual repayments

$

348,762

Equity investments

38,036

Adjustments to cost basis on debt investments

(472

)

Cost basis of investments held at June 30, 2016:

$

386,326

(A)

Subsequent to June 30, 2016, one debt investment with a principal balance of $29.0 million which previously had a maturity date during the fiscal year ending September 30, 2016, was extended to mature during
the fiscal year ended September 30, 2018.

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we have incurred on behalf of portfolio companies and are included in other assets, net
on our accompanying
Consolidated Statements of Assets and Liabilities
. As of June 30, 2016 and September 30, 2015, we had gross receivables from portfolio companies of $0.8 million and $0.6 million, respectively. There was no
allowance for uncollectible receivables from portfolio companies as of June 30, 2016 and September 30, 2015, respectively. In addition, as of September 30, 2015, we recorded an allowance for uncollectible interest receivables of $1.2 million,
which is reflected in interest receivable, net on our accompanying
Consolidated Statements of Assets and Liabilities
. There was no allowance for uncollectible interest receivables as of June 30, 2016. We generally maintain allowances for
uncollectible interest or other receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined based upon managements judgment that the portfolio company is unable to pay its
obligations.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with the Adviser

We have been externally
managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services. The Advisory Agreement originally included administrative
services; however, it was amended and restated on October 1, 2006 and at the same time we entered into the Administration Agreement with the Administrator (discussed further below) to provide those services. With the unanimous approval of our
Board of Directors, the Advisory Agreement was later amended in October 2015 to reduce the base management fee payable under the agreement from 2.0% per annum to 1.75% per annum, effective July 1, 2015, with all other terms remaining
unchanged. On July 12, 2016, our Board of Directors unanimously approved the annual renewal of the Advisory Agreement through August 31, 2017.

In
addition to the base management fee and incentive fee paid pursuant to the Advisory Agreement, we pay the Adviser a loan servicing fee for its role of servicer pursuant to our revolving line of credit. The entire loan servicing fee paid to the
Adviser by Business Loan is voluntarily, irrevocably and unconditionally credited against the base management fee otherwise payable to the Adviser, since Business Loan is a consolidated subsidiary of ours, and overall, the base management fee
(including any loan servicing fee) cannot exceed 1.75% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year pursuant to the Advisory Agreement.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Brubaker (our vice chairman and chief operating officer)
serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. Robert Marcotte (our president) also serves as an executive managing director of the Adviser.

The following table summarizes fees paid to the Adviser, including the base management fee, incentive fee, and
loan servicing fee and associated voluntary, unconditional and irrevocable credits reflected in our accompanying
Consolidated Statements of Operations
:

Three Months Ended
June 30,

Nine Months Ended
June 30,

2016

2015

2016

2015

Average total assets subject to base management
fee
(A)

$

312,914

$

371,800

$

324,419

$

350,450

Multiplied by prorated annual base management fee of 1.75%-2.0%

0.4375

%

0.5

%

1.3125

%

1.5

%

Base management fee
(B)

$

1,369

$

1,859

$

4,258

$

5,257

Portfolio company fee credit

(319

)

(73

)

(553

)

(840

)

Senior syndicated loan fee credit

(17

)

(41

)

(73

)

(120

)

Net Base Management Fee

$

1,033

$

1,745

$

3,632

$

4,297

Loan servicing fee
(B)

896

1,015

2,876

2,802

Credit to base management fee - loan servicing
fee
(B)

(896

)

(1,015

)

(2,876

)

(2,802

)

Net Loan Servicing Fee

$



$



$



$



Incentive fee
(B)

1,187

1,021

3,369

2,866

Incentive fee credit

(160

)

(754

)

(1,110

)

(754

)

Net Incentive Fee

$

1,027

$

267

$

2,259

$

2,112

Portfolio company fee credit

(319

)

(73

)

(553

)

(840

)

Senior syndicated loan fee credit

(17

)

(41

)

(73

)

(120

)

Incentive fee credit

(160

)

(754

)

(1,110

)

(754

)

Credits to Fees From Adviser -
other
(B)

$

(496

)

$

(868

)

$

(1,736

)

$

(1,714

)

(A)

Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash
or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.

(B)

Reflected, on a gross basis, as a line item on our accompanying
Consolidated Statements of Operations
.

Base Management Fee

On October 13, 2015, we amended our
existing advisory agreement with the Adviser to reduce the base management fee under the agreement from 2.0% per annum (0.5% per quarter) of average total assets (excluding cash or equivalents) to 1.75% per annum (0.4375% per quarter) effective
July 1, 2015. All other terms of the advisory agreement remained unchanged. The amendment was approved unanimously by our Board of Directors.

The
base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1.75%, computed on the basis of the value of our average total assets at the end of the two most recently-completed
quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or
repurchases during the period.

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance
to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include, but are not limited to:
(i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services
regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) primary role in interviewing, vetting and negotiating employment
contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser voluntarily, unconditionally, and irrevocably credits 100% of these fees against the base management fee that we would
otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $35 and $0.1 million for the three and nine months ended June 30, 2016 and $44 and $93 for
the three and nine months ended June 30, 2015, respectively, is retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies.

Our Board of Directors accepted an unconditional, non-contractual and irrevocable voluntary credit from the Adviser to reduce the annual base management fee
on senior syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such senior syndicated loan participations, for each of the nine months ended June 30, 2016 and 2015.

The incentive fee consists of two parts: an income-based incentive fee and a capital gains-based incentive fee. The income-based incentive fee rewards the
Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets, adjusted appropriately for any share issuances or repurchases during the period (the hurdle rate). The
income-based incentive fee with respect to our pre-incentive fee net investment income is payable quarterly to the Adviser and is computed as follows:



no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate (7.0% annualized);



100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% of our net assets,
adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter (8.75% annualized); and



20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar
quarter (8.75% annualized).

The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable
in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based
incentive fee payable to the Adviser, we calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the entire portfolios aggregate unrealized capital depreciation, if
any and excluding any unrealized capital appreciation, as of the date of the calculation. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment,
when sold, and the original cost of such investment since inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such
investment since inception. The entire portfolios aggregate unrealized capital depreciation, if any, equals the sum of the difference, between the valuation of each investment as of the applicable calculation date and the original cost of such
investment. At the end of the applicable fiscal year, the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate
realized capital losses, less the entire portfolios aggregate unrealized capital depreciation, if any. If this number is positive at the end of such fiscal year, then the capital gains-based incentive fee for such year equals 20.0% of
such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded or paid since our inception through June 30, 2016, as
cumulative unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

Additionally, in
accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital
gains-based incentive fee. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees
paid in all prior years. If such amount is negative, then there is no accrual for such period. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as
a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based
incentive fee has been recorded or paid since our inception through June 30, 2016.

Our Board of Directors accepted an unconditional, non-contractual and
irrevocable voluntary credit from the Adviser to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of the distributions to common stockholders during the nine months ended June 30, 2016 and 2015.

Loan Servicing Fee

The Adviser also services the loans
held by Business Loan (the borrower pursuant to our line of credit), in return for which the Adviser receives a 1.5% annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our line of credit. As discussed above,
we treat payment of the loan servicing fee pursuant to our line of credit as a pre-payment of the base management fee otherwise due to the Adviser under the Advisory Agreement. These loan servicing fees are 100% voluntarily, irrevocably and
unconditionally credited back to us (against the base management fee) by the Adviser.

Transactions with the Administrator

We pay the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us. The
Administrators expenses are primarily rent and the salaries, benefits and expenses of the Administrators employees, including, but not limited to, our chief financial officer and treasurer, chief compliance officer, chief valuation
officer, and general counsel and secretary (who also serves as the Administrators president) and their respective staffs.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Brubaker (our
vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone.

Our portion of the Administrators expenses are generally derived by multiplying the Administrators total expenses by the approximate percentage of
time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. These administrative fees are accrued at the end
of the quarter when the services are performed and recorded on our accompanying
Consolidated Statements of Operations
and generally paid the following quarter to the Administrator. On July 12, 2016, our Board of Directors approved
the annual renewal of the Administration Agreement through August 31, 2017.

Other Transactions

Gladstone Securities, LLC (Gladstone Securities), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and
insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence
services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the voluntary, unconditional, and
irrevocable credits against the base management fee. Gladstone Securities received fees from portfolio companies totaling $0.3 million and $0.4 million during the three and nine months ended June 30, 2016, respectively, and $0.3 million and $0.7
million during the three and nine months ended June 30, 2015, respectively.

Related Party Fees Due

Amounts due to related parties on our accompanying
Consolidated Statements of Assets and Liabilities
were as follows:

June 30, 2016

September 30, 2015

Base management fee

$

137

$

60

Loan servicing fee

200

241

Net incentive fee

1,027

603

Total fees due to Adviser

1,364

904

Fee due to Administrator

287

250

Total Related Party Fees Due

$

1,651

$

1,154

In addition to the above fees, other operating expenses due to the Adviser as of June 30, 2016 and September 30, 2015, totaled
$3 and $7, respectively. In addition, other net co-investment expenses (for reimbursement purposes) receivable from or payable to Gladstone Investment Corporation, one of our affiliated funds, totaled a receivable of $0.1 million and a payable
of $0.1 million as of June 30, 2016 and September 30, 2015, respectively. These amounts were received or paid in full in the quarter subsequent to being incurred and have been included in other assets, net and other liabilities, as appropriate,
on the accompanying
Consolidated Statements of Assets and Liabilities
as of June 30, 2016 and September 30, 2015, respectively
.

NOTE 5. BORROWINGS

Revolving Credit Facility

On May 1, 2015, we, through Business Loan, entered into a Fifth Amended and Restated Credit Facility (our Credit Facility), which increased the
commitment amount from $137.0 million to $140.0 million, extended the revolving period end date by three years to January 19, 2019, decreased the marginal interest rate added to 30-day London Interbank Offered Rate (LIBOR) from 3.75% to
3.25% per annum, set the unused commitment fee at 0.50% on all undrawn amounts, expanded the scope of eligible collateral, and amended certain other terms and conditions. Our Credit Facility was arranged by KeyBank National Association
(KeyBank), as administrative agent, lead arranger and a lender. If our Credit Facility is not renewed or extended by January 19, 2019, all principal and interest will be due and payable on or before May 1, 2020. Subject to certain terms
and conditions, our Credit Facility may be expanded up to a total of $250.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.1 million in connection with this amendment, which are being
amortized through our Credit Facilitys revolving period end date of January 19, 2019.

On June 19, 2015, through Business Loan, we entered into
certain joinder and assignment agreements with three new lenders to increase borrowing capacity under our Credit Facility by $30.0 million to $170.0 million. We incurred fees of approximately $0.6 million in connection with this expansion,
which are being amortized through our Credit Facilitys revolving period end date of January 19, 2019.

The following tables summarize noteworthy information related to our Credit Facility (at cost) as of June 30,
2016 and September 30, 2015 and during the three and nine months ended June 30, 2016 and 2015:

June 30, 2016

September 30, 2015

Commitment amount

$

170,000

$

170,000

Borrowings outstanding, at cost

73,300

127,300

Availability
(A)

19,397

22,360

For the Three Months
Ended June 30,

For the Nine Months
Ended June 30,

2016

2015

2016

2015

Weighted average borrowings outstanding, at cost

$

52,481

$

109,792

$

59,824

$

84,748

Weighted average interest rate
(B)

4.9

%

3.8

%

4.6

%

4.3

%

Commitment (unused) fees incurred

$

147

$

42

$

417

$

314

(A)

Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether
such repayments are prepayments or made as contractually required.

(B)

Includes unused commitment fees and excludes the impact of deferred financing fees.

Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate
transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders consent. Our Credit Facility also generally limits distributions to our
stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts deemed to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain
limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations,
loan size, payment frequency and status, average life, portfolio company leverage and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among
other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.

Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our
mandatorily redeemable preferred stock) of $205.0 million plus 50.0% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to $214.5 million as
of June 30, 2016, (ii) asset coverage with respect to senior securities representing indebtedness of at least 200%, in accordance with Section 18 of the 1940 Act, and (iii) our status as a BDC under the 1940 Act and as a RIC under the
Code.

As of June 30, 2016, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $244.8 million, asset coverage on our
senior securities representing indebtedness of 430.9%, calculated in compliance with the requirements of Section 18 of the 1940 Act, and an active status as a BDC and RIC. In addition, we had 31 obligors in our Credit Facilitys
borrowing base as of June 30, 2016. As of June 30, 2016, we were in compliance with all of our Credit Facility covenants.

Fair Value

We elected to apply the fair value option of ASC 825, 
Financial Instruments
, specifically for our Credit Facility, which was consistent with
our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a yield analysis which includes a DCF calculation and also takes into account the Valuation Teams own assumptions,
including, but not limited to, the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At each of June 30, 2016 and September 30, 2015, the
discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 3.25% per annum, plus a 0.50% unused fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a
corresponding decrease or increase, respectively, in the fair value of our Credit Facility. At each of June 30, 2016 and September 30, 2015, our Credit Facility was valued using Level 3 inputs and any changes in our credit facilitys fair
value is recorded in net unrealized appreciation (depreciation) of other on our accompanying
Consolidated Statements of Operations
.

The following tables present our Credit Facility carried at fair value as of June 30, 2016 and September 30,
2015, on our accompanying
Consolidated Statements of Assets and Liabilities
for Level 3 of the hierarchy established by ASC 820 and the changes in fair value of our Credit Facility during the three and nine months ended June 30, 2016 and
2015:

Included in net unrealized appreciation (depreciation) of other on our accompanying
Consolidated Statements of Operations
for the three and nine months ended
June 30, 2016 and 2015.

The fair value of the collateral under our Credit Facility totaled approximately $259.4 million and $312.0 million
as of June 30, 2016 and September 30, 2015, respectively.

NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK

Pursuant to our prior registration statement, in May 2014, we completed a public offering of approximately 2.4 million shares of 6.75% Series 2021 Term
Preferred Stock, par value $0.001 per share (Series 2021 Term Preferred Stock), at a public offering price of $25.00 per share. Gross proceeds totaled $61.0 million and net proceeds, after deducting underwriting discounts,
commissions and offering expenses borne by us, were approximately $58.5 million, a portion of which was used to voluntarily redeem all 1.5 million outstanding shares of our then existing 7.125% Series 2016 Term Preferred Stock, par value $0.001 per
share and the remainder was used to repay a portion of outstanding borrowings under our Credit Facility. We incurred $2.5 million in total offering costs related to the issuance of our Series 2021 Term Preferred Stock, which are recorded as
deferred financing fees on our accompanying
Consolidated Statements of Assets and Liabilities
and are being amortized over the redemption period ending June 30, 2021.

The shares of our Series 2021 Term Preferred Stock have a mandatory redemption date of June 30, 2021, and are traded under the ticker symbol GLADO
on the NASDAQ Global Select Market. Our Series 2021 Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.75% per year, payable monthly (which equates in total to
approximately $4.1 million per year). We are required to redeem all of the outstanding Series 2021 Term Preferred Stock on June 30, 2021 for cash at a redemption price equal to $25.00 per share plus an amount equal to all unpaid dividends and
distributions on such share accumulated to (but excluding) the date of redemption (the Redemption Price). We may additionally be required to mandatorily redeem some or all of the shares of our Series 2021 Term Preferred Stock early,
at the Redemption Price, in the event of the following: (1) upon the occurrence of certain events that would constitute a change in control, and (2) if we fail to maintain an asset coverage ratio of at least 200% on our senior securities
that are stock (which is currently only our Series 2021 Term Preferred Stock) and the failure remains for a period of 30 days following the filing date of our next SEC quarterly or annual report. We may also voluntarily redeem all or a
portion of the Series 2021 Term Preferred Stock at our option at the Redemption Price at any time on or after June 30, 2017.

The asset coverage on our
senior securities that are stock as of June 30, 2016 was 235.4%, calculated in accordance with Section 18 of the 1940 Act. If we fail to redeem our Series 2021 Term Preferred Stock pursuant to the mandatory redemption required on June
30, 2021, or in any other circumstance in which we are required to mandatorily redeem our Series 2021 Term Preferred Stock, then the fixed dividend rate will increase by 4.0% for so long as such failure continues. As of June 30, 2016, we have
not redeemed, nor have we been required to redeem, any shares of our outstanding Series 2021 Term Preferred Stock.

We paid the following monthly dividends on our Series 2021 Term Preferred Stock for the nine months ended June
30, 2015:

Fiscal Year

Declaration Date

Record Date

Payment Date

Distribution per
Series 2021 Term
Preferred Share

2015

October 7, 2014

October 22, 2014

October 31, 2014

$

0.1406250

October 7, 2014

November 17, 2014

November 26, 2014

0.1406250

October 7, 2014

December 19, 2014

December 31, 2014

0.1406250

January 13, 2015

January 23, 2015

February 3, 2015

0.1406250

January 13, 2015

February 18, 2015

February 27, 2015

0.1406250

January 13, 2015

March 20, 2015

March 31, 2015

0.1406250

April 14, 2015

April 24, 2015

May 5, 2015

0.1406250

April 14, 2015

May 19, 2015

May 29, 2015

0.1406250

April 14, 2015

June 19, 2015

June 30, 2015

0.1406250

Nine Months Ended June 30, 2015:

$

1.2656250

We paid the following monthly dividends on our Series 2021 Term Preferred Stock for the nine months ended June 30, 2016:

Fiscal Year

Declaration Date

Record Date

Payment Date

Distribution per
Series 2021 Term
Preferred Share

2016

October 13, 2015

October 26, 2015

November 4, 2015

$

0.1406250

October 13, 2015

November 17, 2015

November 30, 2015

0.1406250

October 13, 2015

December 18, 2015

December 31, 2015

0.1406250

January 12, 2016

January 22, 2016

February 2, 2016

0.1406250

January 12, 2016

February 18, 2016

February 29, 2016

0.1406250

January 12, 2016

March 21, 2016

March 31, 2016

0.1406250

April 12, 2016

April 22, 2016

May 2, 2016

0.1406250

April 12, 2016

May 19, 2016

May 31, 2016

0.1406250

April 12, 2016

June 17, 2016

June 30, 2016

0.1406250

Nine Months Ended June 30, 2016:

$

1.2656250

In accordance with ASC 480, 
Distinguishing Liabilities from Equity
, mandatorily redeemable financial
instruments should be classified as liabilities in the balance sheet and we have recorded our mandatorily redeemable preferred stock at cost as of June 30, 2016 and September 30, 2015. The related distribution payments to preferred stockholders
are treated as dividend expense on our statement of operations as of the ex-dividend date. For disclosure purposes, the fair value, based on the last quoted closing price for our Series 2021 Term Preferred Stock, as of June 30, 2016 and
September 30, 2015, was approximately $61.4 million and $62.4 million, respectively. We consider our mandatorily redeemable preferred stock to be a Level 1 liability within the ASC 820 hierarchy.

Aggregate preferred stockholder dividends declared and paid on our Series 2021 Term Preferred Stock for the nine months ended June 30, 2016 and 2015, was $3.1
million. For federal income tax purposes, dividends paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits.

We filed a universal shelf
registration statement (our Registration Statement) on Form N-2 (File No. 333-208637) with the SEC on December 18, 2015, and subsequently filed Pre-Effective Amendment No. 1 on March 17, 2016 and Pre-Effective Amendment No. 2 on March
29, 2016, which the SEC declared effective on March 29, 2016. Our Registration Statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock,
subscription rights, debt securities and warrants to purchase common stock, preferred stock or debt securities.

Common Stock Offerings

Pursuant to our prior registration statement, on February 27, 2015, we entered into equity distribution agreements (commonly referred to as at-the-market
agreements or the Sales Agreements) with KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co., each a Sales Agent, under which we may issue and sell, from time to time, through the Sales Agents, up to an
aggregate offering price of $50.0 million shares of our common stock. During the year ended September 30, 2015, we sold an aggregate of 131,462 shares of our common stock under the Sales Agreements, for net proceeds, after deducting
underwriting discounts and offering costs borne by us, of approximately $1.0 million. We did not sell any shares under the Sales Agreements during the nine months ended June 30, 2016.

Pursuant to our prior registration statement, on October 27, 2015, we completed a public offering of 2.0 million shares of our common stock at a public
offering price of $8.55 per share, which was below our then current NAV per share. Gross proceeds totaled $17.1 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $16.0
million. In

connection with the offering, in November 2015, the underwriters exercised their option to purchase an additional 300,000 shares at the public offering price to cover over-allotments, which
resulted in gross proceeds of $2.6 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were approximately $2.4 million.

Share Repurchases

In January 2016, our Board of
Directors authorized a share repurchase program for up to an aggregate of $7.5 million of the Companys common stock. The repurchases are intended to be implemented through open market transactions on U.S. exchanges or in privately negotiated
transactions, in accordance with applicable securities laws, and any market purchases will be made during open trading window periods or pursuant to any applicable Rule 10b5-1 trading plans. The timing, prices, and amounts of repurchases will depend
upon prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate us to acquire any particular number of shares of common stock. The termination date is the earlier of
repurchasing the total authorized amount of $7.5 million or January 31, 2017. During the nine months ended June 30, 2016, we repurchased 87,200 shares of our common stock at an average share price of $6.53, resulting in gross purchases of $0.6
million.

The following table sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations per weighted average common
share for the three and nine months ended June 30, 2016 and 2015:

Three Months Ended
June 30,

Nine Months Ended
June 30,

2016

2015

2016

2015

Numerator for basic and diluted net increase (decrease) in net assets resulting from operations
per common share

$

5,516

$

3,307

$

(9,328

)

$

13,180

Denominator for basic and diluted weighted average common shares

23,363,952

21,123,202

23,145,842

21,045,014

Basic and diluted net increase (decrease) in net assets resulting from operations per common
share

$

0.24

$

0.16

$

(0.40

)

$

0.63

NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC, we are required to distribute on an annual basis to our stockholders 90.0% of our investment company taxable income, which is
generally our net ordinary income plus the excess of our net short-term capital gains over net long-term capital losses. The amount to be paid out as distributions to our common stockholders is determined by our Board of Directors quarterly and is
based on managements estimate of our investment company taxable income. Based on that estimate, our Board of Directors declares three monthly distributions each quarter.

The federal income tax characterization of all distributions is reported to our stockholders on the Internal Revenue Service Form 1099 at the end of each
calendar year. For each of the twelve months ended December 31, 2015, 100.0% of our common distributions were deemed to be paid from ordinary income for Form 1099 reporting purposes. For each of the nine months ended September 30, 2014, 100.0% of
our common distributions were deemed to be paid from a return of capital and for each of the three months ended December 31, 2014, 100.0% of our common distributions were deemed to be paid from ordinary income for Form 1099 reporting purposes. In
determining the characterization of distributions, the Internal Revenue Code Section 316(b)(4) allows RICs to apply current earnings and profits first to distributions made during the portion of the tax year prior to January 1, which in our case
would be the three months ended December 31. The return of capital in the 2014 calendar year for Form 1099 reporting purposes resulted primarily from GAAP realized losses being recognized as ordinary losses for federal income tax purposes.

We paid the following monthly distributions to common stockholders for the nine months ended June 30, 2016 and 2015:

Aggregate distributions declared and paid to our common stockholders for the nine months ended June 30, 2016 and 2015, were
each approximately $14.6 million and $13.3 million, respectively, and were declared based on estimates of investment company taxable income for the respective periods. For our federal income tax reporting purposes, we determine the tax
characterization of our common stockholder distributions at fiscal year-end based upon our investment company taxable income for the full fiscal year and distributions paid during the full fiscal year. Such a characterization made on a
quarterly basis may not be representative of the actual full fiscal year characterization. For the fiscal year ended September 30, 2015, our current and accumulated earnings and profits (after taking into account our mandatorily redeemable
preferred stock distributions), exceeded common stock distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $2.2 million of the first common distributions paid in fiscal year 2016 as having been
paid in the respective prior year.

For the nine months ended June 30, 2016 and the fiscal year ended September 30, 2015, we recorded the following
adjustments for book-tax differences to reflect tax character.

Nine Months Ended
June 30,
2016

Year Ended
September 30,
2015

Under distributed net investment income

$

6,140

$

387

Accumulated net realized losses

(7,995

)

(387

)

Capital in excess of par value

1,855



NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal
proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not
both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect
on our financial condition, results of operations or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of June 30, 2016 and September 30, 2015,
we have not established reserves for such loss contingencies.

Financial Commitments and Obligations

We have lines of credit, a delayed draw term loan, and an uncalled capital commitment with certain of our portfolio companies that have not been fully
drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines
of credit, the unused delayed draw term loan and the uncalled capital commitment as of June 30, 2016 and September 30, 2015 to be immaterial.

The
following table summarizes the amounts of our unused lines of credit and delayed draw term loan and uncalled capital commitment, at cost, as of June 30, 2016 and September 30, 2015, which are not reflected as liabilities in the accompanying
Consolidated Statements of Assets and Liabilities
: